Analysing the Impact of GST on Pricing Strategies and Profitability: A Primary Study of Retail Business

Abstract

The introduction of the Goods and Services Tax (GST) in India on July 1, 2017, marked a transformative shift in the country's indirect taxation system. This research investigates the impact of GST on pricing strategies and profitability within the retail sector. The retail industry, being highly sensitive to tax structures due to its direct interaction with end consumers, has experienced varied repercussions from this regime change. This study aims to explore how GST has altered pricing mechanisms, profit margins, and strategic decision-making in retail operations, using primary data collected from retail businesses across different categories such as apparel, FMCG, electronics, and groceries.

The study finds that while GST brought simplification in tax compliance and logistics management, it also induced significant transitional challenges, including technology adoption, invoice management, and awareness dissemination. Small retailers, in particular, faced constraints in aligning with new norms due to limited digital infrastructure and financial literacy. Pricing strategies were notably affected, with businesses recalibrating prices to remain competitive and compliant. The tax rate slabs under GST (5%, 12%, 18%, and 28%) influenced pricing differently across product categories, leading to heterogeneous impacts on profitability.

Using a combination of qualitative interviews and quantitative surveys, the research highlights that while large organized retailers adapted quickly due to better resources, unorganized retailers struggled with increased operational costs, ultimately impacting their profit margins. Some retail segments observed an increase in consumer demand due to the elimination of cascading taxes and reduced effective tax burdens, while others suffered due to price hikes and complexity in rate classification.

Key findings indicate that the long-term impact of GST is inclined towards operational efficiency and market consolidation. However, the short-term disruptions and compliance burden have skewed the profitability trajectory for many small businesses.